As digital innovations such as artificial intelligence, cloud computing, automation, and the Internet of Things (IoT) become more readily usable, energy companies are developing strategies that incorporate these burgeoning systems into their operational infrastructure. Distributed ledger technology—otherwise known as blockchain—may be the backbone of this new infrastructure.
Already well-known in the financial sector, blockchain is a peer-to-peer (P2P) network technology that uses advanced computer science techniques to enable trustworthy interactions between parties, even if those parties do not trust each other. It is a shared electronic ledger in which access can be managed by multiple sources, including anonymous ones. Proponents say blockchain is reliable and likely to change the way in which energy companies perform transactions.
Operators are already working with various blockchain platforms, but the developers of these platforms are still forging a path that they hope will lead to widespread adoption within the industry.
The Mechanics of Blockchain
Fig. 1 illustrates the basics of a blockchain platform. An entity requests a transaction, the transaction is broadcast to a P2P network, validated, combined with other transactions to create a block of data within a ledger, and added to a chain of previous transactions in a way that is permanent and unalterable. These transactions can represent anything, from the exchange of numbers of digital assets to the acceptance of a trade of a digital commodity that can be audited by a third party for authenticity without revealing sensitive information. The blockchain ledger can be shared with all members at all times. It is not stored in one place, and there is full transparency—companies can control exactly which information gets shared and with whom.
A blockchain entry can include executable computer code that reflects the terms of the contract, creating a smart contract that automatically validates transactions without the need for human intervention. A smart contract selfexecutes code that enables straight-through processing and eliminates the need for manual intervention in the execution of a transaction. Smart contracts can mimic regular contracts and execute the contract automatically if the conditions required to consummate the contract are met.
Jerry Bailey, director and president of Petroteq and a former senior executive engineer at Exxon, compared blockchain to traditional means of storing information.
“We all have had big file cabinets, big file rooms all through the years,” Bailey said. “You go into a file room and find dozens of file cabinets. Everybody had a key to the file room but not everybody had a key to each of the file cabinets, depending on what their part in the company was. Blockchain is like this to me. It sets up a system where not only the company, but our vendors, our suppliers, and our buyers can look into the appropriate file cabinet, as it were.”
